AE The Relationship between Entrepreneurship and Corporate Governance. The Case of Romanian listed Companies
Amfiteatru Economic 44
THE RELATIONSHIP BETWEEN ENTREPRENEURSHIP
AND CORPORATE GOVERNANCE.
THE CASE OF ROMANIAN LISTED COMPANIES
Nadia Albu1* and Ruxandra Adriana Mateescu2
1)2) Bucharest University of Economic Studies, Romania
Please cite this article as:
Albu, N. and Mateescu, RA., 2015. The Relationship between Entrepreneurship and
Corporate Governance. The Case of Romanian listed Companies. Amfiteatru Economic,
17(38), pp. 44-59
Abstract
This paper offers an investigation at a micro-level of entrepreneurship in the business
environment. More precisely, we conduct an empirical study of the relationship between
corporate entrepreneurship and corporate governance in the case of the Romanian non-
financial listed companies. We use publicly-available information (financial statements,
annual reports) and we mobilize a framework derived from the agency and signalling
theories to interpret our findings from the statistical analysis based on correlations. Our
results suggest that there are differences between industries and between the companies
included or not in the new BET-TR index in terms of corporate entrepreneurship and
corporate governance practices and disclosures. Agency theory partly explains our findings.
Specifically, some corporate governance mechanisms, i.e. board independence and
institutional ownership, are associated in our sample with corporate entrepreneurship. We
thus document that corporate governance as a controlling and management technique
fosters corporate entrepreneurship in Romanian companies. Signalling theory assumptions
are generally not verified for the companies in our study. There are only a few associations
between high values of corporate entrepreneurship and corporate entrepreneurship
disclosures, and even fewer between corporate governance practices and corporate
governance disclosures.
Keywords: corporate entrepreneurship, corporate governance, Romania, agency theory,
signalling theory
JEL Classification M 14, L26, G 34
* Corresponding author, Nadia Albu- [email protected]
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Vol. 17 • No. 38 • February 2015 45
Introduction
The increased economic globalization boosts the entrepreneurial activity all over the world,
and consequently the entrepreneurship research rapidly increased in the last years.
Entrepreneurial activity takes place and might be investigated at individual, organizational,
and national level (Luke, Verreynne and Kearins, 2007). While the fall of communism and
economic opportunities transformed the emerging economies in interesting investment
destinations in the last years, few studies addressed the entrepreneurial activity in these
countries, especially at the organizational level.
The aim of this study is to investigate the association between corporate entrepreneurship
and corporate governance in the case of Romanian listed entities through the lens of a
theoretical framework derived from the agency theory and signalling theory. Romania and a
few other former communist countries are considered “modest innovators” in the European
Union (Business24, 2014a), and thus research on corporate entrepreneurship is useful to
understand its mechanisms. Prior research in Romania addressed the institutional quality of
the business environment and discussed the impact on entrepreneurship (Marinescu, 2013),
and additional research on corporate entrepreneurship should follow. We focus on listed
companies because they are considered to be key to entrepreneurship and innovation
worldwide (Tribbitt, 2012; Vermeulen, 2012).Also, information released by the National
Institute of Statistics (Business24, 2014b) shows that the most innovative Romanian
companies are the biggest ones.
Our study responds to a call for empirical research on the association of major factors that
affects the corporate entrepreneurship (Hagen, Emmanuel and Alshare, 2005) and for
research reconciling the traditional view based on agency theory in accounting and
corporate governance with entrepreneurship (Toms, 2006). Collin and Smith (2003) discuss
the importance of investigating the relationship between corporate entrepreneurship as an
enabler of the firm’s development and corporate governance as a disciplining and
controlling mechanism. Corporate governance mechanisms are essential for large entities.
Prior research shows that corporate governance mechanisms might enhance
entrepreneurship (for example, through the presence of entrepreneurial external board
members) (Vermeulen, 2012), but also might hinder it because of the differences in the
time perspective (the long term orientation of entrepreneurship versus the short term control
triggered by corporate governance) (Liang and Meng, 2010). Investigating the relationship
between entrepreneurship and corporate governance is of interest since both of them
represent emergent practices in Romania.
The remainder of this paper is organized as follows. The literature review section
synthesizes the prior literature on corporate governance, corporate entrepreneurship and on
the relationship between them. The next section describes the research methodology,
including the theoretical framework derived from the agency theory and signalling theory
and the technique used for data collection. The results analysis section describes the
findings of the paper and examines them in the context of the theoretical framework and
prior literature. Finally, the conclusion section synthesizes the main findings and
contributions.
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Amfiteatru Economic 46
1. Literature review
1.1 Corporate entrepreneurship
While the concept of entrepreneurship is widely employed, there is a lack of consensus on its definition and usage. Sharma and Chrisman (1999) indicate that the first reference to this concept was made in 1734 by Richard Cantillon in the sense of self-employment with an uncertain return. The significance of the concept evolved, and nowadays the entrepreneurship is analysed at the individual, organizational, or national level (Luke, Verreynne and Kearins, 2007) and is conceived as characteristics (such as innovation, growth etc.) or outcomes (such as creation of value) (Gartner, 1990). Sharma and Chrisman (1999) make an effort to reconcile the existing definitions and approaches and define entrepreneurship as follows: “Entrepreneurship encompasses acts of organizational creation, renewal, or innovation that occur within or outside an existing organization” (p. 17).
One of the most important areas of research in entrepreneurship is corporate entrepreneurship (CE) (Hagen, Emmanuel and Alshare, 2005). The authors consider that “a company’s entrepreneurship is the sum of a company’s innovation and venturing activities” and results in helping the company “acquire new capabilities, create more business, enter new business, develop new revenue stream […], and improve its performance” (p. 469).
CE is generally investigated in a wider context. Some authors (Collin and Smith, 2003; Rauch, Wiklund, Lumpkin and Frese, 2009) relate the entrepreneurial orientation to strategy making and identify some specific activities in organizations, such as innovativeness, risk taking and proactiveness. Other authors distinguish between antecedents of CE, elements of CE, and consequences or outcomes of CE. For example, Ireland, Covin and Kuratko (2009) develop a CE model including antecedents (such as external environmental conditions), elements of CE (such as the strategic vision, organizational structure), and outcomes. A comparable approach might be found in Collin and Smith (2003) which discuss the determinants of CE, the entrepreneurial performance and the impact of this performance.
Based on an extensive literature review, Rauch, Wiklund, Lumpkin and Frese (2009) discuss the relationship between corporate entrepreneurship and performance and find that the relation is not straightforward and is impacted by moderator variables such as national culture, business size, and technological intensity of the industry.
1.2 Corporate governance
Corporate governance (CG) is a concept that developed in the early ‘70’s in the United States as a result to a series of economic failures that had led to the loss of investors’ confidence in managers’ ability to lead the big corporations and public institutions (Cheffins, 2012). Since then, there has been a continuous care for improving corporate governance mechanisms worldwide, as to avoid new bankruptcies and improve companies’ accountability.
An influential report (the Cadbury report in 1992) defines CG as “the system by which companies are directed and controlled” (Collin and Smith, 2003: 8). A more complex definition is found by Tribbitt (2012: 44): “a set of mechanisms used to manage the conflicting interests among stakeholders and to determine and control strategic direction and performance of organizations”. This definition is particularly interesting because it anticipates the relationship between CG to CE (represented by the strategic direction).
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Vol. 17 • No. 38 • February 2015 47
Two CG mechanisms widely described in literature and related in many studies to CE are the board of directors and the institutional ownership. The board of directors has the responsibility of acting in the best interest of shareholders by monitoring the management team (Hitt, Ireland and Haskisson, 2009). Hoogiemstra (2012) supports the fact that the board of is one of the most important internal governance mechanisms, given that the boards’ tasks include, among others, hiring and firing the CEO, setting the CEO remuneration, and supervising the corporate strategy. The board is composed of internal members and of independent board members, external to the firm.
Another important corporate governance mechanism is the presence of institutional investors which play an active role in influencing the managers’ behaviour by reducing their discretionary space (Hoogiemstra, 2012; Malinowska and Gad, 2012).These owners are typically pension funds and investment firms, and they are typically classified in short-term or long-term owners (Zahra, 1996). Bushee (2004) supports the fact that the so-called ‘transient investors’ are rather interested in short-term returns, while the long-term investors have the financial power and the necessary expertise to support long term research and development projects. Corporate governance represents an important topic in emerging economies such as Romania, especially given the legal requirements for transparency and quality (Manolescu, Roman and Mocanu, 2011; Needles, Turel, Sengur and Turel, 2012; Dyczkowska, 2014).
1.3 The relationship between corporate entrepreneurship and corporate governance
There are an increasing number of studies relating corporate entrepreneurship to corporate governance. One of the first studies suggesting this relationship is authored by Covin and Slevin (1991). The authors do not explicitly mention corporate governance, but refer to variables such as top management team, structure, and culture which might be considered as proxies for CG mechanisms (Trebbitt, 2012).
Later, Zahra (1996) examines the influence of several types of CG on CE. More precisely, the author investigates how the structure of the board, outside director ownership, executive ownership, institutional ownership impact on CE. CE is measured through 14 items which are estimated through questionnaires. The findings suggest that there is a positive relationship between outside board members ownership, CEO duality and CE. Zahra, Filatotchev and Wright (2009) investigate how the dual role of the board (protecting shareholders wealth and creation of new wealth) stimulate CE. The paper does not test the framework with the relationships between CG and CE, but contributes to the existing literature in the area and represent a starting point for future empirical studies.
Hagen, Emmanuel and Alshare (2005) examine the impact of a company’s governance mechanisms on entrepreneurship. Corporate governance system is analysed through the following dimensions: independence of the board chair, board size, board structure, alongside with stock ownership and institutional ownership. The results show that an independent board chair, the board size, and stock ownership of outside board members have a positive relationship with entrepreneurship. Regarding the way institutional investors influence the companies’ CE practices, Scott (2011) concluded that they have the power and expertise to ameliorate the research and development practices.
Tribbitt (2012) reviews studies showing how CG mechanisms (such as the board of directors, ownership etc.) impact on the strategy of the firm and therefore influence the CE. This literature review concludes that this stream of research needs additional attention.
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Amfiteatru Economic 48
2. Research methodology
2.1 Theoretical framework
The most commonly used theory in corporate governance research is the agency theory
(Hooghiemstra, 2012), the proof being the large number of studies which deal with this
problem (Hooghiemstra, 2012; Malinowska and Gad, 2012; Mygind, 2007; Postma and
Hermes, 2003). According to Hoogiemstra (2012), the agency theory refers to the contract
between shareholders and managers, when a company’s shareholders hire a manager to run
the business on their behalf and delegate decision-making authority to this manager. The
agency problems arise usually due to the existence of divergent goals between managers
and owners, i.e. the agent and the principal, meaning that the manger stops acting to meet
the shareholders’ interest (Mygind, 2007), because of different risk preferences but also due
to informational asymmetry (Hoogiemstra, 2012).
Wijbenga, Postma and Stratling (2007) employ the agency theory to discuss a CG-CE
relationship, stating that agency theory “fosters a control approach of governing the firm,
which emphasizes results-oriented management and accountability of the entrepreneurial
team” (p. 261). As such, in order to manage this goal conflict, CG mechanisms are in place.
For example, corporate boards have a role in strategy development and implementation,
managers’ control and reward systems.
In this study we employ three CG variables: board dimension (the number of directors),
board independence (the percentage of independent members), and institutional investors
presence (the percentage of shares held by institutional investors). In accordance with the
agency theory, these control mechanisms are in place and might have an impact on CE.
Based on prior literature (Ahmad and Hoffman, 2007; Luke, Verreynne and Kearins, 2007;
Tribbitt, 2012) we operationalize CE through two variables: growth (of revenues,
employees and profit) and research and development activity. We assume, in a manner
coherent with prior research, that listed companies are entrepreneurial organizations
(Tribbitt, 2012; Vermeule, 2012), and the evolution of revenues, employees and profit
results from the entrepreneurial activity. Even if at the organizational level only some
activities might be entrepreneurial in nature and might have a different impact on these
variables, our research is based on organizations as units of study, and the variables
selected reflect this methodological choice (derived also from the data publicly available).
Both CG and CE are expected to have positive impact on the company’s performance
(Hagen, Emmanuel and Alshare, 2005; Rauch, Wiklund, Lumpkin and Frese, 2009; Liang
and Meng, 2010). Signalling theory suggests that companies with superior performance use
disclosed information to send signals to the market (Campbell, Shrives and Saager, 2001;
Oliveira, Rodrigues and Craig, 2005). Based on signalling theory, we hypothesize that the
companies with good CG systems and with successful CE activities will disclose more
information. CG disclosures are selected from the CG literature (Hagen, Emmanuel and
Alshare, 2005; Zahra, Filatotchev and Wright, 2009) and include: the corporate governance
section, bylaws, supervisory board, and information about managers and committees. CE
disclosures are derived from the CE literature (Ahmad and Hoffman, 2007; Hagen,
Emmanuel and Alshare, 2005; Ireland, Covin and Kuratko, 2009; Rauch, Wiklund,
Lumpkin and Frese, 2009; Tribbitt, 2012) and include information about innovation of
products, processes, how the structure supports innovation, and how innovation is related to
company’s growth, technology, and strategy.
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Vol. 17 • No. 38 • February 2015 49
Figure no. 1: Theoretical framework derived from agency theory
and signalling theory
The framework includes organizational variables because they impact on both CG and CE.
The organizational variables analysed are the size, financial leverage, profitability, type of
auditor, and industry. Size, financial leverage and profitability are variables used in all the
studies concerned with organizations (Hagen, Emmanuel and Alshare, 2005; Ireland, Covin
and Kuratko, 2009; Oliveira, Rodrigues and Craig, 2005). Industry is an important variable
because the degree of innovation is dependent in many cases on the industry. The type of
auditor is important especially in the case of Romania (as an emerging economy) because it
represents an additional disciplining mechanism.
This framework is applied in our research to a sample of Romanian listed entities in order
to propose an informed explanation of the results that will be observed for the relationship
between CG and CE.
2.2 Data collection
As stated in the introduction, the focus in our paper is on Romanian listed entities. At least
in the case of Romania it is more likely that these entities adopt and disclose CG practices
(Feleagă, Feleagă, Dragomir and Bigioi, 2011). The first tier of the Bucharest Stock
Exchange includes 29 companies, of which 10 are financial institutions. We exclude the
financial institutions from our sample because they have particular norms and behaviours.
This practice is consistent with other studies on Romanian listed companies, especially
those investigating CG or disclosure practices (such as Caloian, 2013). Also, we exclude
two companies, Concefa and Oltchim, because of their economic bad situation (failed
privatization, significant losses, insolvency etc.). Therefore we have 17 companies in our
final sample. Recently, the Bucharest Stock Exchanged introduced BET-TR index
including the best 10 performers of the local market (of which four banks and financial
institutions), which generate over 86% of the market capitalization (BVB, 2014).
Data were collected from publicly available sources (mainly from the annual report) for the
2013 financial year. Prior research on CE and CG-CE relationship used data collected
through questionnaires (such as Zahra, 1996) but also publicly available information (such
as Tribbitt, 2012). Each type of data has advantages and disadvantages. Data collected
through questionnaires is more subjective since it is not checked before being released as
the publicly disclosed information is. On the other hand, companies might adopt strategies
Agency theory
Signaling
theory Signaling
theory
Organizational variables
Corporate governance
mechanisms
Corporate entrepreneurship
practices
Disclosures about CG Disclosures about CE
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Amfiteatru Economic 50
about their disclosures. Smith, Gannon and Sapienza (1989) provide some methodological
suggestions for conducting research in the CE area. They recommend the use of objective
data for public entities, for the analysis of behaviours (and not intentions), and post-hoc
analysis. Therefore, the use of publicly-available data is an appropriate methodological
choice in our case.
The data collection procedure for the variables included in the theoretical framework is
detailed in Appendix A. The description of the sample used is in Table no. 1.
Table no. 1: Descriptive statistics for organizational variables
Mean Standard deviation Median Minimum Maximum
Size (total assets in mil. lei) 4913.53 9446.42 511.57 110.56 38144.62
Profitability 0.027 0.11 0.055 -0.262 0.169
Leverage 0.199 0.225 0.094 0.011 0.683
Dichotomous =0 =1
Big 4 auditor 7 (41.2%) 10 (58.8%)
BET-TR Index 11 (67.7%) 6 (35.3%)
Industry No. % of total
Pharmaceuticals 3 17.6%
Energy and gas 7 41.2%
Others 7 41.2%
Besides descriptive statistics, the statistical analysis includes Spearman correlations.
Correlation analysis is a technique used to observe the existence and the direction of a
relationship between two variables.
The reduced size of the sample is one of the limits of the study, and it obstructs a more
detailed statistical analysis. For the same reason, we did not formulate hypothesis to be
tested, because this approach would have implied a high expected level of statistical rigor.
We consider this study as being rather exploratory, and the use of the agency and signalling
theory to interpret data comes to compensate for the statistical limitations. The scope of the
paper is to enhance the understanding of the Romanian context and not to lead to statistical
generalizable results. Also in line with the exploratory-type research, we do not
differentiate between dependent and independent variables. We analyse the potential
association between variables which might be further investigated in future research.
3. Research results
The first step of our analysis consists in the investigation of the CE and CG practices as
they are reflected in the annual reports. The general results are presented in Table no. 2.
Table no. 2: Descriptive statistics for CE and CG variables Statistics CG Board
Dim
CG Board
Ind
CG
InstOwn
CE Growth
Rev
CE
GrowthPr
CE Growth
Empl
CE
R&D
No. of observations 17 17 17 17 17 17 17
Minimum 5.000 0.000 0.000 -28.400 -100.000 -23.100 0.000
Maximum 14.000 85.7 91.000 19.700 482.600 11.700 7.500
Median 5.000 57.1 54.280 0.060 15.700 -1.500 0.200
Mean 6.471 47.6 47.682 -0.473 41.229 -2.582 1.106
Standard deviation 2.294 25.1 31.908 11.027 124.952 8.109 2.053
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The results show that the number of board members ranges from 5 to 14, and the
percentage of independent members ranges from 0 to 85.7. The values for CE variables
suggest that the growth manifested differently in what concerns the revenues, the profits,
and the number of employees. Some companies registered a decrease of one, two or all
three CE measures.
An additional analysis of the database (Appendix B) reveals that 8 companies (47% of the sample) registered a decrease in revenues, 4 companies (23.5% of the sample) a decrease in profits, and 12 companies (70.6% of the sample) a decrease in the number of employees. Only one company registered a decrease for all three CE measures. These results indicate that these three measures of the company’s growth reflect different facets of the CE. While the literature (Ahmad and Hoffman, 2007; Luke, Verreynne and Kearins, 2007; Tribbitt, 2012) points to the importance of CE for growth of revenues, profits, and job creation, our results show that the companies are concerned more with the growth in profits. This might be explained by the fact that these are listed companies, for which profits represent the main performance indicator for investors and shareholders. On the other hand, we notice that almost two third of the sample experienced a decrease of the number of employees. This result should be interpreted taking into consideration the effects of the economic crisis and the pressures for efficiency. However, this results show that even if the companies perform in some areas of CE, most of them fail to support job creation. We further investigate if there is a difference between industries and between the BVB performers and the other companies (Table no. 3).
Table no. 3: Descriptive statistics for CG and CE variables, differentiated
by the inclusion or non-inclusion in BVB index and by industry
Statistics CG
BoardDim CG
BoardInd CG
InstOwn CE
GrowthRev CE
GrowthPr CE
GrowthEmpl CE
R&D
Companies included in BVB index
Mean 7.500 59.5 65.047 2.083 99.817 -0.883 1.983
Standard
deviation 3.332 14.7 19.470 11.725 194.961 5.963 3.049
Companies not included in BVB index
Mean 5.909 41.0 38.210 -1.867 9.273 -3.509 0.627
Standard
deviation 1.375 27.7 34.057 10.943 52.849 9.206 1.175
Companies in the Pharmaceutical industry
Mean 5.667 61.0 61.570 6.033 13.433 2.067 0.867
Standard deviation
1.155 18.6 28.220 6.732 9.505 3.323 0.981
Companies in the Energy and Gas industry
Mean 7.429 59.2 64.271 1.794 71.271 -1.686 1.700
Standard deviation
3.047 13.5 17.891 10.730 193.336 5.843 2.883
Companies in Industry
Mean 5.857 30.2 25.140 -5.529 23.100 -5.471 0.614
Standard deviation
1.574 28.0 33.453 11.705 49.022 10.772 1.373
The companies included in the BET Total Return index have more members in the board,
more independent board members, and a higher percentage for the institutional owners. All
the values for the CE measures are higher in the case of the companies included in the BVB
index. The results also confirm the existence of differences between industries in terms of
CG practices as they are reflected in the annual report, but mainly in terms of CE practices.
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Amfiteatru Economic 52
The companies in the pharmaceutical industry have all three CE measures positive, and the
highest value for the growth revenue. This result is supported by the financial media which
points that this industry is the most innovative in Romania (Business24, 2012). The
companies in the energy, oil and gas industry also have good values for the CE measures,
especially for the growth in profits. Also, these companies have good investments in R&D.
As the existing literature suggests the existence of a relationship between the CG and CE
practices, we conduct a correlation test to check for the potential associations. The
correlation tests provide the results in Table no. 4.
Table no. 4: Spearman correlation matrix regarding the relation
between CGvariables, CE variables and the organizational variables
Variables
CG
Board
Dim
CG
Board
Ind
CG
InstOwn
CE
Growth
Rev
CE
Growth
Pr
CE
Growth
Empl
CE
R&D Size Profit. Leverage
CG
BoardDim 1
CG
BoardInd 0.068 1
CG
InstOwn 0.405 0.689*** 1
CE
GrowthRev -0.200 0.514** 0.543** 1
CE
GrowthPr -0.035 -0.129 -0.141 -0.306 1
CE
GrowthEmpl 0.260 0.296 0.557** 0.338 -0.221 1
CE
R&D 0.213 -0.024 0.214 0.132 -0.066 0.755*** 1
Size 0.099 0.289 0.132 0.172 -0.201 0.267 0.127 1
Profitability -0.377 0.359 0.152 0.625*** 0.054 0.157 -0.066 0.387 1
Leverage -0.166 -0.040 -0.012 0.255 -0.431* -0.135 -0.227
0.297 -0.145 1
Significant correlation coefficients are indicated in bold.
*, **, *** represent p<0,1, p<0,05, p<0,01
The results show a positive association between some CG variables and CE variables, thus
providing some support for the agency theory. The board independence and the institutional
ownership are positively related to the growth in revenues, and the institutional ownership is
positively related to the growth in the number of employees. The CE variables are not
correlated (with one exception, i.e. the R&D and the growth in the number of employees),
which suggests the complexity of the CE concept and the need to employ several variables to
capture more dimensions. Organizational variables generally have no association with CG or
CE practices, only leverage and profitability having one statistical significant association.
We further investigate the manner in which CE information is communicated. The results
for the CE disclosures are shown in table no. 5.
Table no. 5: The extent of CE disclosures
CE Discl
Prod
CE Discl
Proc
CE Discl
Struct
CE Discl
Growth
CE Discl
Tech
CE Discl
EntrStruct
CE Discl
EntrStrat
No. of
companies 11 9 5 14 15 10 15
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The companies disclose more information about entrepreneurial strategy, investments in
technology, growth and less about structure. Some examples of disclosures in the CEO
letters follow:
“Company will extend its range of products by creating new generic products, acquiring
licences from other producers or manufacturing contract, having the main objective the
strengthening of BIOFARM position on the pharmaceutical market from Romania and in
foreign markets by developing a competitive portfolio, based on real needs of the market.”
(Biofarm) (disclosures about products innovation)
“In line with our strategy, we are developing a performance-based organizational culture
and skill pool to achieve business growth.” (OMVPetrom) (disclosures about an
entrepreneurial structure aligned to strategy)
The values for the total disclosure score are shown in Table no. 6.
Table no. 6: Descriptive statistics for the total disclosure score by industry Min Max Mean Standard deviation
Total sample 0.143 1.00 0.664 0.252
Pharma 0.571 1.00 0.810 0.218
Energy and
gas 0.429 1.00 0.694 0.192
Others 0.143 0.857 0.571 0.309
We notice the differences between industries in the CE disclosures, the companies from the
pharmaceutical industry disclosing more. In order to check the signalling effects, we
analyse the correlations between the CE measures and CE disclosures (Table no. 7).
Table no. 7: Spearman correlation regarding the relation between CE disclosures,
CE variables and operational variables CE
GrowthRev CE GrowthPr
CE
GrowthEmpl CE R&D Size Lev Profit
CEDisclProd 0.075 0.352 0.276 0.141 0.000 -0.176 0.151
CEDisclProc -0.120 -0.096 0.241 0.012 0.120 0.024 -0.024
CEDisclStruct -0.026 -0.053 -0.053 0.174 -0.290 -0.105 -0.132
CEDisclGrowth 0.283 -0.031 0.567** 0.577** 0.189 0.031 0.094
CEDisclTech 0.410 -0.373 0.559** 0.304 0.447* 0.335 0.037
CEDisclEntrStruct 0.293 -0.634*** -0.073 -0.137 0.000 0.122 0.122
CEDisclEntrStrat 0.335 -0.335 0.522** 0.455* 0.149 0.149 -0.149
Signifiant correlation coefficients are indicated in bold.
*, **, *** represent p<0,1, p<0,05, p<0,01
The predictions of the signalling theory are not obvious in our sample. There are only four
significant positive associations between CE measures and CE disclosures. The disclosures
related to growth and to the entrepreneurial strategy are correlated with the growth in the
number of employees and R&D investments, and the disclosures about technology are
correlated with the growth in the number of employees. Surprisingly, the growth in profit is
negatively correlated with all but one disclosure measures, but only one correlation (with
the entrepreneurial structure) is statistically significant. This finding might suggest that
when companies experience a decrease in profits they disclose more information about CE,
as a promise for future profits, using rather a legitimizing theory instead of signals for the
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Amfiteatru Economic 54
current performance. Again, organizational variables generally are not associated with CE
disclosures. Only size is positively associated with disclosures about entrepreneurial
technology (Table no. 8).
Table no. 8: Descriptive statistics for CG disclosures
Variables No. of observations Min Max Mean Median Standard deviation
CGDiscSection 17 0 2 1,12 1 0,86
CGDisclBy 17 0 2 1,06 1 0,55
CGDisclSuperv 17 0 2 1,35 1 0,61
CGDisclMan 17 0 2 1,18 1 0,73
CGDisclCom 17 0 2 0,65 0 0,79
We observe that CG disclosures are quite diverse in our sample. The most present
disclosures are about the supervisory board, and the least disclosed information is about
committees. An additional analysis reveals that only one company discloses all the
information, and only one does not disclose any of the information.
We further analyse the correlations between the CG dimensions and the CG information
disclosed in order to check the effects of the signalling theory (Table no. 9).
Table no. 9: Spearman correlation regarding the relation between CG disclosures,
CG variables and operational variables
CG
BoardDim
CG
BoardInd
CG
InstOwn Size Lev Profit
CGDisclSection -0.452* 0.348 -0.240 0.141 -0.172 0.196
CGDisclBy -0.250 -0.046 -0.341 -0.047 0.130 -0.058
CGDisclMan -0.132 0.015 0.111 -0.280 0.199 -0.185
CGDisclSuperv 0.078 0.191 0.281 -0.422* 0.043 -0.202
CGDisclCom 0.143 0.011 0.139 -0.497** -0.073 -0.535**
Significant correlation coefficients are indicated in bold.
*, **, *** represent p<0,1, p<0,05, p<0,01
As in the case of CE disclosures, the signalling theory is not supported by the CG
disclosures practices. Interestingly, the only statistical significant association is negative,
and it concerns the size of the board and the disclosure of CG section. Organizational
variables present three negative significant associations with CG disclosures. This implies
that the results in our sample do not support the general assumption that larger companies
or more profitable companies disclose more information.
Conclusions
This study investigated the association between corporate entrepreneurship and corporate
governance in the case of Romanian listed entities. We used publicly available information
(data collected from financial statements, annual reports, and BSE website) and employed a
theoretical framework derived from the agency theory and signalling theory in order to
have a richer understanding of the results obtained.
First, we provide evidence about CG and CE practices of the Romanian listed companies.
We document the existence of differences between the companies from different industries
and between the companies included or not in the BET-TR index of the BSE. Therefore,
Fostering Entrepreneurship in a Changing Business Environement AE
Vol. 17 • No. 38 • February 2015 55
our results confirm the superiority of the performers included in the BET-TR index in terms
of both CG and CE practices and disclosures. This is one of the first studies investigating
the differences between the companies included or not in this index. We also confirm that
the companies in the pharmaceutical sector and in the energy, oil and gas sector are more
entrepreneurial and disclose more information than the others.
Second, we find significant variations in the values for various CE and CE disclosure
measures. We therefore document that CE is a very complex concept, and complex
methodologies and measures should be employed in order to grasp it in practice. While the
CE literature acknowledged the complexity of the concept (Covin and Slevin, 1991;
Gartner, 1990; Ireland, Covin and Kuratko 2009), we confirm the difficulty of
operationalizing it in empirical research.
Third, the results obtained can only partially be explained through the agency and even to a
lesser extent through signalling theory. The board independence and the institutional
ownership are positively related to some growth measures, suggesting that these controlling
mechanisms are associated with CE. These results provide support for the idea that CG
enhances CE which was advanced in literature but tested in few countries (Vermeulen,
2012). Also, few statistically significant correlations exist between CE and CE disclosures
measures, and CG and CG disclosures measures, thus offering a reduced support for the
signalling theory. Additional theories or methodologies should be employed in future
research in order to investigate the complex phenomena of CG and CE in the case of an
emerging economy such as Romania.
The results are of interest for the capital market participants. The practitioners might have a
general image about the CE and CG practices as they are reflected by the annual report. As
the annual report is considered to be one of the main communication tools of listed
companies, the capital market regulators and auditors might be more concerned about the
communication practices and about the compliance with the mandatory transparency
requirements.
Acknowledgement
This work was co-financed from the European Social Fund through Sectoral Operational
Programme Human Resources Development 2007-2013, project number
POSDRU/159/1.5/S/134197 “Performance and excellence in doctoral and postdoctoral
research in Romanian economics science domain”. The authors thank the reviewers for
their constructive comments.
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Appendix 1
Variable Variable label Description Source of the data
CE variables
Growth of revenues CEGrowthRev The percent increase in revenue from 2012 to 2013
Financial statements
Growth of profit CEGrowthPr The percent increase in profit from 2012 to
2013
Financial statements
Growth of employees CEGrowthEmpl The percent increase in the number of employees from 2012 to 2013
Financial statements
Research and
development
CER&D The percent of research and development
activity costs in total assets
Financial statements
CG variables
Board size CGBoardDim The number of the board of directors Company’s website,
annual report
Board independence CGBoardInd The percentof independent board members Company’s website, annual report
Institutional
ownership
CGInstOwn The percent of shares held by institutional
investors
BVB website
CE disclosures
Product innovation CEDisclProd Dummy variable, takes the value of 1 if information about product innovation is
disclosed, 0 otherwise
CEO letter; annual report
Process innovation CEDisclProc Dummy variable, takes the value of 1 if information about process innovation is
disclosed, 0 otherwise
CEO letter; annual report
Structure innovation CEDisclStruct Dummy variable, takes the value of 1 if
information about structure innovation is disclosed, 0 otherwise
CEO letter; annual
report
Growth CEDisclGrowth Dummy variable, takes the value of 1 if
information about growth resulting from innovation is disclosed, 0 otherwise
CEO letter; annual
report
Investments in
technology
CEDisclTech Dummy variable, takes the value of 1 if
information about investments in technology
for innovation is disclosed, 0 otherwise
CEO letter; annual
report
Entrepreneurial
structure
CEDisclEntrStruct Dummy variable, takes the value of 1 if
information about how the structure supports innovation (through rewards,
training, culture) is disclosed, 0 otherwise
CEO letter; annual
report
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Vol. 17 • No. 38 • February 2015 59
Variable Variable label Description Source of the data
Entrepreneurial
strategy
CEDisclEntrStrat Dummy variable, takes the value of 1 if
information about how the strategy supports innovation is disclosed, 0 otherwise
CEO letter; annual
report
CG Disclosures
CG section CGDisclSection Dummy variable, takes the value 0 if
corporate governance information is not available on the company’s website, 1 if
they can be found in different sections of the
website, 2 if the website has a separate corporate governance section
Company’s website
CG bylaws CGDisclBy Dummy variable, takes the value 0 if the
company does not disclose any of its
bylaws, 1 if it discloses the bylaws in the national language and 2 if they are available
in English
Company’s website
Supervisory Board CGDisclSuperv Dummy variable, takes the value 0 if the company discloses no information
concerning its supervisory board, 1 if they
only disclose the name of the supervisory
board members and 2 if they disclose the
members’ names and their independence
Company’s website
Management CGDisclMan Dummy variable, takes the value 0 if the
company discloses no information concerning its managers, 1 if they only
disclose the name of the managers and 2 if they disclose the members’ names and their
professional experience
Company’s website
Committees CGDisclCom Dummy variable, takes the value 0 if the
company discloses no information about the supervisory board’s separate boards, 1 if it
only discloses the names of the members or
the committees’ responsibilities and 2 if it discloses the names of the members, their
independence and the committees’
responsibilities
Company’s website
Organizational variables
Size Size Ln of total assets Financial statements
Leverage Lev Long term liabilities divided by shareholders
equity
Financial statements
Profitability Profit Profit divided by shareholders equity Financial statements
Auditor type Audit 1 if a Big four auditor, 0 otherwise Annual report
Industry Ind The following classification of industries is
employed: Pharmaceuticals, Energy and
Gas, and Industry.
Annual report
BVB-TR BVB 1 if included in the Total Return BVB Index,
0 otherwise
BVB
This work was cofinanced from the European Social Fund through Sectoral Operational Programme Human Resources Development 2007-2013, project number POSDRU/159/1.5/S/134197 „Performance and excellence in doctoral and postdoctoral research in Romanian economics science domain”